You may have built a business in New York from the ground up, perhaps with several partners. It has seen significant success and has attracted investors. In such a situation, you may decide that you want to incorporate. The following is an overview of two corporate structures you might consider.
A basic corporation is referred at times as a C corp. Corporations are a separate entity from its owners for legal purposes. This means that corporations can make profits and be taxed. They can also be sued or otherwise held legally liable, meaning that the corporation’s owners will not be personally liable for the actions and debts of the business. Corporations have certain start-up costs and require extensive record-keeping. In addition, there are state reporting requirements corporations must follow. In addition, corporate profits are sometimes subject to double taxation – once when they make a profit and a second time when dividends are paid to stockowners.
An S corp is designed to avoid the double taxation C corps are subjected to. In an S corp, profits are passed directly to the owner’s personal income. Thus, these profits are not subject to corporate taxation. The stockholders of an S corp are taxed federally, and some states also tax stockholders of an S corp. S corps are limited to 100 stockholders, and all must be citizens of the United States. S corps also have to follow state filing requirements and operational processes.
Are you interested in incorporation?
The decision to incorporate is an exciting one, but there are many legal aspects of forming a corporation. This post is for educational purposes only and does not contain legal advice. Those who want to learn more about business law are invited to explore our firm’s website for further information.